Consumer Equilibrium In Case of a Single Commodity
|(a) MEANING OF CONSUMER’S EQUILIBRIUM||Equilibrium means state of maximum satisfaction.
Consumer’s equilibrium is a situation when he spends his given income on purchase of one or more commodities in such a way that he gets maximum satisfaction and has no urge to change this level of consumption, given the prices of commodities.
|(b) CONDITION OF CONSUMER EQUILIBRIUM IN CASE OF SINGLE COMMODITY||Consumer will be in the state of equilibrium when following condition is fulfilled:
Marginal utility of commodity ‘X’ in terms of rupees is equal to the price of commodity ‘X’ in rupees. [MUx (in Rs.) = Px (Rs.)]
Mux (in utils) = Px (in Rs.) or MU of Commodity ‘X’ (in utils) = Px in Rs)
|(c) HYPOTHETICAL SCHEDULE/ NUMERICAL EXAMPLE||Let us take the example of Fruit Ice-cream. Price of an ice-cream Scoop is Rs.30 and MUm i.e. MU of money (Re 1) = 1 util.
|(d) EXPLANATION AND CONCLUSION||In the given example, level of Consumer’s Equilibrium is 3 units
MU of Ice Cream in rupees = Price of Ice Cream in rupees i.e. Rs.30.
- Has reached the equilibrium
- Has started incurring losses
- Can consume more of X
- Must stop consuming X
Answer: Can consume more of X
- Total utility and marginal utility
- Price of commodity and marginal utility
- Price of commodity and total utility
- (a) and (b) both
Answer: Price of commodity and marginal utility